We bought platinum in mid-January in my True Wealth advisory, and we sold it less than two weeks ago – for a 35% profit in seven months.
Why did we sell?
Platinum is doing well, right? Everybody loves it now, right?
Let me explain…
WHY we sold is the important part…
If you want to be a great trader or investor, you need to think about this: A good trade is made up of a good buy AND a good sell.
Most people spend 99% of their investing thought on when and what to buy… But almost zero thought goes into when to sell.
What's your selling strategy? Can you define it?
You ought to define your selling strategy – up front – even before you enter a trade. That's what we did with platinum. And as I said, it led to 35% profits in seven months.
We bought platinum in January when it was cheap and hated. To briefly explain our platinum buy…
||It was near-record cheap based on history – trading at nearly a $300 discount to gold. And,
||It was extremely hated… We saw a multi-year low in the shares outstanding of the main platinum exchange-traded fund (ETF), so we knew investors had given up on platinum.
In January, I laid out our trading strategy fairly clearly. I said, "Buy the ETFS Physical Platinum Shares (PPLT) today. Use a 10% stop loss. Plan on selling when the fund is up 30% or in 18 months, whichever comes first."
Importantly, we laid out our sell strategy right from the outset. When you read what I wrote, you can see that we had three defined exit points…
||If we were wrong (using a 10% stop loss),
||If we were right (selling when the position went up 30%), and
||We had a "time" stop (knowing when to throw in the towel on the trade).
In the end, we got it right. We were up 35% in just seven months – and we sold. It was absolutely the right thing to do… as platinum moved from "hated" to "loved."
Today, investors are overly bullish on platinum prices. We can see this by looking at the Commitment of Traders ("COT") report for platinum.
The COT reports tell us what the "real money" is doing – what futures traders are doing with their own money. When traders all agree on an expected outcome, the opposite tends to occur.
Today, traders are all betting on higher platinum prices. And the last two times they were near this level of optimism, platinum prices crashed – by $300 per ounce or more in less than six months. Take a look…
Today's bullish bets are now the most extreme in history.
In short, platinum is up big… And now everyone is betting on higher prices. This is NOT when we want to own platinum…
So far, we have been exactly right about this. Platinum has fallen dramatically since we sold.
We want to own it when investors hate it, not when they love it. So we are comfortable with the trade we made – getting out when platinum was overly loved.
This brings me to the big question: What's your exit strategy for each of your trades?
What? You don't have one? Why not? It's time to get on it!
Here's a simple checklist to get you started…
||How much am I willing to lose? (In platinum, we were willing to lose 10% before we "cried uncle.")
||What's my price target? (In platinum, our target gain was 30% – which was three times our downside risk.)
||How long will I give this trade before I pull the plug? (In platinum, we said 18 months.)
A good trade is made up of a good buy and a good sell… You probably already have the "buy" part down. But what are you doing for the "sell" part?
I urge you to go through each of your stocks and put them through the three questions on my simple checklist. Use my platinum trade as your blueprint.
You'll be a lot better off if you do. You won't be holding and hoping… You won't be forever questioning, "Is this the right moment?" And most important, you'll have an exit plan.
You'll be better off for it, I promise…